One reason for the confusion is that an English-language translation of the new rules has not yet been made widely available, sources said.
An English-language press release, posted on the ESCA website last week, announced that the regulations had been issued “to help boost corporate investment and attract foreign investment”, but did not provide details. It said the new regulations would enter into force on the day afterthey were published in the Official Gazette, but did not say when this would be.
However, a 35-page translation of the new rules provided to International Adviser did give some clarity.
Among other things, it notes that “No foreign investment funds units may be promoted in [the United Arab Emirates] unless through the following entities:
(A) Banks licensed by the Central Bank
(B) Investment companies licensed by the Central Bank.
(C) Companies licensed for such purpose by the [Emirati Security & Commodities] Authority."
It continues:
"Foreign investment fund units may be promoted in the State in a private offering through the representative office of the foreign company, provided that promotion in this case shall be for institutions only, and by a minimum of AED10mn ($2.7m, £1.7m) for the single subscriber."
Later, on the subject of minimum subscriptions for single investors, it says:
"The minimum limit of the subscription of a single investor in the units of a foreign investment fund approved to be promoted in the [UAE] by [ESCA] in a private offering shall be the limit stipulated by the offer document, providing not to be less than AED500,000 ($136,122, £86,841) as for the foreign investment fund, and AED1mn as for the investment fund incorporated in a free zone outside the [UAE]."
Lengthy consultation period
Asset management industry sources said the release of the new regulations followed a lengthy period of consultation with the industry, including asset managers and banks, as the Emirati authorities sought to tighten up on what has been, until now, a lightly-regulated jurisdiction.
The question, they add, is whether the new regulations will take away what many believe is one of Dubai’s greatest assets — the "offshore" quality of the Dubai International Financial Centre, a "free zone" which, at least until now, has operated under separate rules from the rest of the UAE.
"What they have been looking to do is to separate what is ‘offshore’ — that is, within the jurisdiction of the DIFC and the Dubai Financial Services Authority — and what is "onshore", with anyone wanting to sell onshore, including directly to residents of the UAE, having to have an onshore licence," said one asset management executive who was familiar with the draft legislation but not the final rules.
Another question, he said, was whether funds that were domiciled in a jurisdiction other than the UAE could be sold to UAE investors if they were not also available to investors in the country in which they were domiciled.
‘Match best international practice’
In its statement announcing the unveiling of its new regime for investment funds, ESCA chief executive Abdullah Al Turifi said the intention was for ESCA to "develop its legislative system, in line with…best international practices, in terms of both the legislation and the regulations that govern the markets".
"The authority has been willing to diversify investment instruments, which help deepen the market and attract more local and foreign investments," he added.
ESCA was created 12 years ago to develop regulatory system to oversee the UAE’s financial services industry, which at that point was still in its infancy. It has recently been taking over responsibility for large areas of financial services that previously had been handled by the UAE’s Central Bank, as part of a move towards a more “twin peaks” model of regulation.
Based in Abu Dhabi, ESCA is eventually to be re-named the Financial Services Authority.
